To curb the galloping inflation, Venezuelan government has decided to curtail public spending by issuing $2.8 billion in bonds and treasury notes by the end of this year.
Country’s inflation has risen to 17 percent last year, which raises the apprehension of policymakers.
Country’s finance minister Rodrigo Cabezas said that the idea is to moderate spending gradually while monitoring the economy’s response.
Policymakers have a plan to moderate the inflation by 12 percent this year, but it seems a very difficult task to attain.
Embodied with the petroleum resources, Venezuelan government will try to keep the yearly economic growth near 8 percent this year. Policymakers didn’t show any sign to increase its benchmark interest rate and assert that country will likely end the year with a fiscal deficit of 2 percent of gross domestic product without increasing bank rate.
Recently, Venezuela has nationalized its oil resources and forced foreign drillers to sign a deal with the government to minimize their share in country’s oil reserve. Those who would oppose the agreement, Chavez led government would throw them out of the country.
Chavez has also pulled Venezuela out from the international institutions viz. IMF and WB - arraigned them as ally of America dictating minor countries.
After taking such bold step, Venezuela returned all financial institutions’ debt, weakening country’s fiscal reserve. Also, its policy to remain aloof from the rest of the world has caused trade deficit and foreign currency shortage, which directly mar the domestic market and spurred the inflation.
To meet the inflation in the early phases, administration plans to sell $2.8 billion in government debt, including $837.2 million in short-term treasury notes and will buy $100 million in Bolivian treasury notes in the coming months.
Devaluation of Bolivar isn’t on Government’s card, but possibility can’t be rule out. Venezuela has fixed its exchange rate in 2003, and since then, the Central Bank has devalued currency twice.
Venezuela currency traded at 2,150 bolivars to one U.S. dollar.
